(Updates throughout, adds fresh analyst comments)
* Dollar index hits fresh 4-month low
* Yuan recovers to trade around 7 per dollar
* Euro holds firmly below $1.16
* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E
By Ritvik Carvalho
LONDON, July 23 (Reuters) – The U.S. dollar hit four-month lows against a basket of peer currencies on Thursday and China’s yuan partially recovered losses from an earlier slide, as investors took a wait-and-see approach to tensions between the two countries.
The United States gave China until Friday to close its consulate in Houston following allegations of spying.
China has vowed to respond, and the escalating tension between the world’s two largest economies sent the yuan on its sharpest slide in nearly two months on Wednesday.
That slide reversed on Thursday, with the offshore yuan bouncing back to trade around the 7 per dollar mark.
Viraj Patel, FX and global macro strategist at Arkera, said the main upcoming event will be U.S. Secretary of State Mike Pompeo’s speech on China later on Thursday, provided it goes ahead, as U.S.-China tensions are the dominant narrative for dollar trade this month.
“Investors will likely equate further action (not just rhetoric) to an escalation in tensions and that could dent risk appetite more broadly if dollar/yuan moves back above the 7 handle,” he said.
UBS forecast the yuan – a barometer of Sino-U.S. relations – would reach 6.8 per dollar by the end of 2020, and 6.7 by the first half